The rising share prices of GameStop, BlackBerry and other companies offering a number of YOLO paydays for some members of Reddit’s Wallstreetbets Forum also deserves a windfall for corporate insiders.
Since January 1, executives of BlackBerry and GameStop have been selling shares, earning a total of more than $ 22 million in stock. Lately, they have also received a major boost from the loose amateur traders on social media who relentlessly offered the shares of the companies, some of whom at least declared their mission to divert profits from Wall Street to Main Street. .
There is no allegation of improper insider trading related to any of the transactions. And several experts told CBS MoneyWatch they see no evidence that the corporate insiders and executives who recently sold GameStop and BlackBerry shares did anything wrong.
Still, a person familiar with the stock sales told CBS MoneyWatch that GameStop has decided over the past few days to restrict executives and insiders from selling additional shares.
Managers and insiders are leaving at the same time that Wallstreetbets participants are urging their members to increase the stock. Robinhood, a popular trading program among Wallstreetbets investors, this week traders temporarily banned to buy more shares of GameStop. The ban was partially lifted on Friday.
Managers tend to trade stocks through predetermined plans to prevent the appearance they traded on insider information, which is illegal. But comments about the trade in recent documentation submitted by the executives to the U.S. Securities and Exchange Commission do not mention that the recent share sales at both BlackBerry and GameStop occurred through these so-called 10b5-1 plans. This indicates that none of the transactions were pre-scheduled.
“Pay for happiness”
More importantly, perhaps, stock options and other stock allotments should connect executives with other investors – in short, corporate leaders are supposed to pay for their achievements to build viable companies in the long run. Yet the experts tell CBS MoneyWatch to raise money on what many people see as reckless speculation driven by social media.
“It’s luck,” said Benjamin Golez, associate professor of finance, at the University of Notre Dame’s Mendoza College of Business.
Three BlackBerry executives paid out nearly $ 1.7 million in the company’s shares last week. One of the executives, Steve Rai, chief financial officer of BlackBerry, sold all his shares in the company, although he has non-investment options that could turn into shares in the future.
BlackBerry shares traded at about $ 5.50 before becoming the talk of the Wallstreetbets message board. At that price, the shares of the three executives would have been worth about $ 700,000. But the ensuing frenzy caused by Wallstreetbets added $ 1 million to the combined value of their shares.
The Wallstreetbets rebels could cause a bigger windfall for BlackBerry CEO John Chen. Under its compensation package for joining the software company in 2018, Chen could receive a one-time cash bonus of $ 90 million if BlackBerry’s shares were traded at more than $ 30 at any time before the end of 2026.
On Wednesday, shares of BlackBerry, which has lost more than $ 800 million in the last four reported quarters, came close to the magical $ 30 number, reaching $ 25, although they have since retreated to around $ 14.
BlackBerry did not respond to a request for comment on the sale of shares. However, a BlackBerry spokesman told the Wall Street Journal that the executives had sold their shares during a window in which trading was allowed.
$ 20 million richer
The bank accounts of four directors of the difficult retailer GameStop also benefited from the Reddit raiders. GameStop has lost nearly $ 1.6 billion over the past three years. Its sales have recently dropped by 30%, and it is closing 1,000 or about 20% of all its stores. Still, the company’s shares rose from about $ 17 at the beginning of the year to $ 315 on Friday.
Since the beginning of the year, four members of GameStop’s board have raised $ 20 million by selling company stock. One of the sellers was Kurt Wolf, a money manager and former executive consultant who joined GameStop’s board last year. Hestia Capital, Wolf’s investment fund, dropped more than two-thirds of its stake in GameStop in January, earning Wolf and his clients just over $ 17 million.
GameStop did not return requests for comment on its executive stock sales. Wolf declined to comment for comment. A document from the SEC notes that Wolf sold to diversify his fund holdings.
Thomas Gorman, a partner at the law firm Dorsey & Whitney and an expert in securities law who spent seven years with the Securities and Exchange Commission, said he would advise the boards of companies whose shares were offered by Wallstreetbets, he would tell them to ask managers not to sell them while the share was artificially increased.
Gorman also stressed that executives who sell shares do not violate any rules. Corporate boards cannot prevent executives from selling in a sudden stock exchange, provided the profits are not related to inside information.
“This is information from outsiders,” he said.
The problem is that stock compensation is supposed to adjust managers to the broader fortunes of the corporation. In the case of GameStop and BlackBerry, it seems that executives and insiders are benefiting from the furious speculation in the companies’ share – no real improvement in their business.
“Boards can use their bullying chair and tell their executives that this really is not a smart time to earn their shares,” Gorman said. “But that does not mean that the managers, who are sitting on all these shares, are going to listen.”